This Monday morning, Bitcoin is enjoying traction, with its price moving to break above $28,000. At the time of writing, the largest cryptocurrency has been trading at $27,834.
As the price rose, so did the open interest (OI), which is the number of unsettled futures contracts. Bitcoin OI jumped 9.22% over the past 24 hours to 460.95K BTC worth $12.81 bln, while the total crypto market OI rose 6.69% to $25.58 bln, as per CoinGlass.
These gains come after the reports that the US Securities and Exchange Commission (SEC) won't be appealing a court's reversal of its decision not to let investment manager Grayscale convert its Bitcoin Trust (GBTC) into a more investor-friendly exchange-traded fund (ETF), possibly clearing the way for the first Bitcoin Spot ETF in the US.
According to a person familiar with the matter, the Commission had until midnight Friday to decide on challenging the court's decision, but the SEC will let that deadline come and go without appealing. This led Bloomberg ETF analyst James Seyffart to call Spot Bitcoin ETF approval a “done deal.”
In a statement, Grayscale reportedly said that with the SEC's 45-day period to seek a rehearing passed, the court would now issue its “final mandate” within a week. “The Grayscale team remains operationally ready to convert GBTC to an ETF upon the SEC's approval,” the company reportedly said.
In August, the DC Circuit Court of Appeals ruled that the securities regulator's denial of Grayscale Investment's application to convert the Grayscale Bitcoin Trust (GBTC) into an ETF was invalid and must be reviewed. Calling the regulator's rejection “arbitrary and capricious,” the court said that the SEC must “treat like cases alike.”
It is still unclear how the agency will proceed with Grayscale's application given that the SEC has the authority to deny it for other reasons, though Grayscale can also challenge those reasons again in court.
Grayscale first applied to convert its closed-end fund GBTC, the largest crypto fund in the world, into an ETF in October 2021. GBTC has been trading at a steep discount to its bitcoin holdings since February 2021, with the discount reaching as high as 50% at one point, but has since retreated to its lowest levels in about two years at under 16%. The discount first started narrowing when BlackRock and several other financial institutions filed their applications for a spot Bitcoin ETF in mid-June.
The digital asset manager has long advocated that the conversion of GBTC to an ETF would eliminate the discount as it would close the gap between the price and the underlying BTC due to the structure of ETFs allowing for a creation-redemption model, which means new ETF shares can be created to meet demand or redeemed to reduce supply.
Unlike Bitcoin, the second largest crypto, Ether is not capturing the trader or investor's attention as it exchanges hands at $1,587. With that, the ETHBTC ratio fell to a new 2023 low at 0.05663 on Monday before slightly recovering to 0.05698.
Ethereum has also been generating low network revenue from fees, which dropped to its lowest level since April 2020 and is down 90% from its high this May, as per IntoTheBlock data. While during the bull market, the network suffered from high transaction costs and congestion due to increased activity, now that demand for NFTs and DeFi protocol has collapsed, so have the network fees and revenue. Moreover, the proliferation of layer 2s, which were developed to help Ethereum scale, is also contributing to bringing down fees.
This is impacting ETH's supply by keeping it inflationary by burning fewer tokens than new issuance. Over the past 30 days, ETH token supply has grown by 33,500 ETH (worth about $52 million). “The decrease in fees is putting ETH's ‘ultra sound money' thesis to a test,” said Lucas Outumuro, IntoTheBlock's head of research.
While ETH is struggling, Bitcoin's uptrend has sent the likes of Bitcoin SV (BSV), Rollbit Coin (RLB), Render (RNDR), Stacks (STX), MultiverseX (EGLD), Bitcoin Cash (BCH), Trust Wallet (TWT), and Flow upwards, marking the green start of this new week that has the total crypto market capitalization up by 2.7% to $1.12 trillion. Despite this, the total market cap has remained tightly range-bound since its fall in mid-August.
However, this uptrend is not market-wide. The likes of Solana (SOL) are in the green but not as much as the above-mentioned tokens.
Amidst this, the estate of the now-defunct crypto exchange FTX has reportedly staked 5.5 million SOL tokens as well as just over 24,000 ETH. This means SOL tokens locked up for a certain amount of time contribute to sustaining the blockchain's operation in return for passive income. Earlier this month, Solana also hit record-breaking amounts in its total value locked (TVL), reaching its highest levels in 2023 at $338.2 million.
Recently, a court filing highlighted that the estate holds a substantial amount of SOL. In fact, SOL is its largest portion of digital assets at approximately $1.16 billion. When the bankruptcy court approved FTX's liquidation plan, including those SOL tokens along with roughly $2.5 billion in other crypto assets, it sent the crypto market into a frenzy due to potential selling pressure.
The liquidation process, however, adheres to stringent regulations to prevent any adverse repercussions on the crypto market from a sudden, massive sell-off. Under the rules, the estate can only sell crypt assets in increments of $50 million per week, gradually ramping up to $100 million.
Currently, decentralized finance (DeFi) tokens, in particular, are underperforming the crypto market. The sector is actually emerging as the biggest loser in the ongoing cryptocurrency bear market, with the total amount of capital locked on DeFi protocols dropping to its lowest point since February 2021 late last week as traders pull liquidity to secure higher yields.
While the wider crypto market succumbed to a bearish cycle last year, central banks across the globe raised interest rates to fight inflation. This led to increased yields across traditional funds while the DeFi sector failed to attract new capital, with its rates continuing to plunge. There have been a few emerging narratives like liquid staking and tokenization of real-world assets (RWAs), but the level of interest and capital is nowhere near the DeFi summer of 2020.
On top of this, DeFi hacks continue to affect the market, with 297 crypto hacks happening this year alone, resulting in a loss of $1.89 billion, according to Money Monger's crypto heist report.
Economic Events This Week
This week is another busy one with escalating geopolitical tensions and a speech from the Federal Reserve chair to add to the markets' volatility while sentiments remain broadly bearish.
On Tuesday, we will see the release of US retail sales data for September, which measures the change in the total sales value at the retail level. As the foremost indicator of consumer spending, it accounts for the majority of overall economic activity, and if it falls, it would be bearish for the overall economy.
On Thursday, leading economic indicators will also be released along with jobless claims. Additionally, all eyes will be on Fed Chairman Jerome Powell, who will speak at the Economic Club of New York ahead of the next FOMC meeting for further clues on the US central bank's rate outlook after data last week showed consumer prices increased more than expected in September.
Markets are largely expecting the Fed to keep rates on hold on its next monetary policy decision in November, with the CME FedWatch tool showing a roughly 32% chance that the central bank could deliver a rate hike in December.
While these events may not impact the crypto market much, the Israel-Hamas clash continues to persist. Moreover, according to Ray Dalio, “this war has a high risk of leading to several other conflicts of different types in a number of places,” and its harmful effects are expected to extend beyond Israel and Gaza.
After a rally driven by the raging Israel-Hamas conflict sending investors to the safety of safe havens pushed prices of gold above the key $1,900 ceiling, the precious metal slid on Monday, pressured by technical selling. Spot gold fell to $1,917.8 per ounce.
Investors see bullion as a safe place to park money during economic and geopolitical stress. As a result, its price surged 3.4% on Friday in its biggest one-day rise in seven months to hit its highest level since Sept. 20 at $1,934.82. If the situation in the Middle East continues to escalate, gold may continue its uptrend in the near-term.
On Sunday, US President Joe Biden said he believes the Hamas militant group must be eliminated after top US officials warned that the war could escalate. If the conflict draws in other countries, it can potentially drive up oil prices further.
However, much like gold, oil prices slipped on Monday after surging nearly 6% on Friday to last week to post their highest daily percentage gains since April. But now, as investors assess the situation, Brent futures went down to $90.56 per barrel, and WTI crude fell to $87.43 a barrel.
As for the dollar, the greenback came off highs but held at elevated levels. At 106.38, the dollar stayed near a one-week high against the euro and sterling. The Israeli shekel meanwhile fell to more than an eight-year low of 3.9900 per dollar after the country's Prime Minister Benjamin Netanyahu vowed on Sunday to “demolish Hamas.”
“Obviously war is inflationary, disrupts growth and threatens risk assets,” said James Malcolm, head of FX strategy at UBS in London.
In the week ahead, Q3 earnings reports of several companies are slated to be released. This includes Tesla, Charles Schwab, Bank of America, Goldman Sachs, Lockheed Martin, Netflix, Morgan Stanley, Union Pacific, AT&T, Taiwan Semiconductor Manufacturing, and others.
Crypto Unlocks This Week
While a busy week in terms of economic events, this week, there aren't many tokens that will be added to their circulating supply, according to TokenUnlocks.
On Tuesday, 4.23% of APE's circulating supply, 15.60 million tokens worth $16.72 mln will be unlocked. These tokens are divided among Treasury, Yuga Labs, Yuga Labs founder, launch contributors, and charity. The token is currently trading at $1.07, recording $29.7 mln in 24-hour trading volume. It is down 83% since hitting its 2023 high at $6.30 in late Jan. this year.
On Friday, Axie Infinity will release 11.50% of the token's circulating supply. 15.13 million tokens worth $65.5 mln will be unlocked, which belong to the team, advisors, ecosystem fund, Play to Earn, and staking rewards. Meanwhile, the token only saw $32.2 mln in trading volume in the past 24 hours. Trading at $4.30, the AXS token's price is down 60.7% over the past year and 97.4% from its all-time high (ATH).
Then, over the weekend, Space ID will unlock 18.49 million tokens, 6.46% of the circulating supply, worth $3.48 mln. These tokens are part of marketing, foundation, ecosystem fund, and community airdrop. Trading at 0.188, ID's price is down almost 82% from its peak, which it hit just six months ago.
When it comes to price, the crypto market remains subdued, with bouts of volatility experienced at times. For now, the crypto industry has no major event in the short term lining up to take it north. However, investors are looking ahead for potential Bitcoin spot ETFs and halving next year with enthusiasm.
On the regulatory front, California Governor Gavin Newsom signed a crypto licensing bill that includes a licensing regime and gives the Department of Financial Protection (DFPI) and Innovation enforcement and rulemaking authority over the sector. It is set to take effect in July 2025.
Elsewhere, Australia is expected to release a draft legislation that covers licensing and custody rules for crypto providers by 2024, and once it becomes law, exchanges will have a year to transition to the new regime. Additionally, the Reserve Bank of Australia and the Treasury will publish a joint report around mid-next year that will “set out a roadmap for future work” of CBDC.